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Saturday, January 12, 2008

Project Risk and Activity Duration Estimating

It has been said that "sometimes the greatest risk is not taking one." Whether this is true or not depends on how much of a risk-taker you are as a project manager. If you are aware of your project's identified risks, you will be better able to perform your project activity duration estimates.

Identified risks can affect activity durations considerably. You should take the impact of identified risks into account when performing activity duration estimates to improve the accuracy of the project schedule. There are two main factors to consider when assessing the identified risks. These two factors are discussed below.

1. Is the risk a threat or an opportunity?
Risks are generally perceived in one of two ways—as threats or opportunities. Threats are risks that may have adverse effects on project activities. Opportunities are risks that may have favorable effects on project activities.

Deciding whether a risk represents a threat or an opportunity can help you perform activity duration estimates. Activity durations will not necessarily change based on whether you perceive risks as threats or as opportunities. However, your perception will likely impact your willingness to put up with the effects the risks may have on your activity durations.

2. Does the risk have a high or a low probability of occurring?
The relationship between a risk's probability and its potential impact on activity duration estimates is directly proportional. This means:

high probability = high potential impact

low probability = low potential impact.

One of the most effective ways to assess the probability of identified risks is to examine historical information. Information from previous projects can help project managers gauge the probability of risks occurring on current projects.
The project team must decide the extent to which the effect of risk should be considered in the baseline estimates for each activity. If the effect of identified risks is not taken into account, activity durations could take longer than expected. Be aware of the effects of a project's identified risks, and help keep the project's schedule on track.

A project's identified risks can have significant impact on activity durations, so remember to consider risks when formulating your activity duration estimates.